There may be no underlying financial issue, but percentage wise we're going down much faster. September to Oct 2008 was a 9.5% drop (steepest month drop). Past 30 days was a 20.5% drop. Tracking s&p 500.
It doesn't even seem to be a real index on economic activity anymore either...
In my personal view 'The Market's purely reflect consumer confidence. They appear divorced from actual reality, aside from how that affects the mindset of easily panicked lemmings.
Not really. There's tons of steady demand to drive money forward. You can double or half average consumer confidence and it won't change the price of a burger or a t-shirt.
The difference in this case is that the stock market is a highly efficient process, where feedback paths are short, information is shared widely, and there is potential to make a lot of money on other's misjudgements, automatically correcting the price in the process. This means changes in confidence are almost immediately reflected in the price.
T-shirts, on the other hand, much more slowly change to match confidence, for the same reasons. If you think people collectively over- or undervalue T-shirts, it is rather hard to make money off of that mistake. In part because it implies moving physical stock, but also because they are a relatively refined product. Markets for natural resources see some of the same fluctuations as stock markets, although not to the same degree.
Thinking something is over or under valued is very different from general confidence in the economy. In daily life you're not betting on the economy, you're part of it. You work and spend even if you think the nukes are going to kill everyone. Confidence has a vastly weaker connection to demand for goods.
If people think the dollar is significantly overvalued, they'll switch to gold, bitcoin, rolls of toilet paper, or other forms of ad-hoc currency. That's what happens in countries with 1000% inflation, for example.
Stock market is a tricky gauge. People sell for all sorts of reasons even if some of it is rational. Always good to remember that the fact that there’s a sale also means there’s a buyer. Another fact is there could be large number of shares that never traded. It’s hard to dissect this information from price alone. All we know from a dip is that there’s more demand to sell than buy. That’s hardly enough information to see the full picture.
Stock prices don't really matter in the short-term, and we are lucky that the underlying financials are good, and that -- at the end of the largest bull run in history -- many of the largest companies have lots of cold hard cash. Apples hundreds of billions don't look so silly now, do they?
Oh, BTW, the floor is hard-set at zero, which they'll never get to, since -- given there is no underlying financial issue, and that demand is going to be higher than ever once we're done with this -- all these companies have intrinsic value.
I won't opine on the correct value of the stock market at the moment, but the drop in demand due to measures needed to preserve life cause a financial issue. Many/most consumer-facing businesses can't withstand a drop in demand to near zero for a period of at least several months. So those businesses, absent some sort of national bailout, will go bankrupt. Or at the very least, they will go dormant. Either way there will be layoffs, and of course the laid off employees will reduce their spending further. Even once the virus is under control, it will take time to reverse this damage.
Yes, of course, the market won't go to zero. But some firms will go under, and we don't know how severe the economic impact will be. Just because the crisis began with a natural disaster rather than a financial one doesn't mean there can't be serious financial impact.
Sure, but economic fallout from natural disasters typically recover much faster. It doesn't shock our trust in the financial system, and people are more community minded, since no person can be blamed for it. Already, we are seeing bipartisan attempts at governmental stimulus. Did you ever think you'd see Trump and Pelosi agree on government spending, because the white house was pretty quick to endorse the house's plan.
But back to pandemics. Pandemics typically result in major booms due to (a) the die off, (b) the pent-up demand, and (c) the fact that everyone still trusts the financial system. The 1918 pandemic certainly caused major GDP losses, and short-term pain, but also caused the 20s
I think you’re overlooking the cascading effect of a lot of small businesses closing doors (voluntarily or involuntarily) while this blows over — not knowing how long it will take to blow over.
Short of a bailout, that’s not going to be easy to recover from. And even a bailout won’t be enough to bring about a full recovery anytime soon.
You should only buy now if you a) suddenly have a lot of cash, AND b) can definitely take a long-term position without needing the money for 5-10 years.
Everyone else should wait for the upward trend to make sure it's not going to get much worse. You want to "predict the staircase" and not "the floor".
To put a finer point on it, a fully funded safety net is a good idea before moving money into investments. Enough to cover basic expenses for, let’s say, a year. How long exactly depends on your risk tolerance.
Not a financial advisor, standard disclaimers, etc.
